Tax Amnesty Package 2018: What are its Effects on Real Estate Sector of Pakistan?
Recently, the Federal Government of Pakistan has announced a tax-reform-package and amnesty, which is expected to revamp and modify the whole taxation system in Pakistan. In this blog, we will discuss the effects of Tax Amnesty Package 2018 in detail and how it will affect property sector of Pakistan.
Major Points of Tax Package
Few major points of tax package include:
- Income tax brackets and percentages to be reviewed.
- Full tax exemption on annual income up to RS 1.2 Million.
- CNIC numbers to be made NTN numbers, to check the tax submission of every citizen.
- Government to supervise financial records of citizens and issue notices if any evidence of tax evasion is found.
- Undeclared assets held abroad must be declared after payment of minimal penalties.
- Tax to be collected on every property transactions has to be uniform.
It’s a positive step taken by the Government and will have excellent results in the future. Generally, people hold ‘black money’ either in cash, or get them white by using the typical Telegraphic transfer technique by paying 3-5 % on the said amount. The Government has condensed the penalty to just 5% and this encourages all of them, who’ve undeclared money.
Many people get 50% of their amount white through amnesty or by purchasing properties with 100% of their money. This makes them safe, as the Government can’t purchase the property unless it pays 100% of its value. However, it’s an illegal practice.
But, when it comes to real estate sector, the most significant part is abolishing of FBR and DC values and settling of taxes on transactions according to the actual values.
Let’s say, you buy a 1-Kanal plot in DHA Phase 8, Lahore for 2 crore rupees. You’ll be paying the following taxes after declaring all your assets through this amnesty package:
- 1% of total value of plot as advance adjustable income tax: 2 Lacs
- 1% of total value of plot as a provincial tax: 2 Lacs
Although, there may be countless distinctions of this instance, depending on what you’re purchasing. However, commercial investments, where people used to hideaway with low taxes, in such cases, it might not be that profitable in terms of tax savings, except someone does “underprice.” Alternatively, plots in 9 Prism are hardly around 10 Million prices and may save you few lacs.
Many people will like to take benefit from this scheme, therefore the Government will raise billions of rupees of tax in terms of 5% penalty. The money declared won’t be used in the real sector, but the real estate sector may offer a safe haven if someone doesn’t want to declare 100% amounts.
Generally, it’s visible that numerous transactions will be emerging before July 2018, as many people who are afraid of change will prefer to enter into real estate before they take the effect.
These current tax reforms will imitate certainly on the real estate sector progress in long-term, as people will be very certain on the taxes they’ve to pay, averting complex process they’ve to go through these days. In the end, your CNIC will be your NTN, which means everyone should pay taxes if it is implemented 100%.
If you still people who want to remain non-tax-filers, the only choice they are left with is to trade in properties below 4-Million rupees.
Well, being honest, this is a great tax reform package. We should take this positive step and boost people to become part of the tax net. Our government has understood the difficulty of the people and has finally elevated a chunk of income tax to 1.2 Million. Furthermore, the rate of income tax is quite reasonable, especially for high earners above 4.2 Million. It’s a win-win for real estate in both, short-term and long-term situations.
The taxes will go lower in most of the cases and investors will feel more contented dealing with an unpretentious and general taxation system. One counter of divergence is that real estate won’t be offering a tax-haven anymore, so we may see very little interest in it by some investors.
May 29, 2018 AT 10:40 AM
I think It's a good initiative, let's hope it work's out this time.
June 1, 2018 AT 06:47 PM
These tax reforms schemes are just political stunts before the general elections because if they really wanted it to be effective, they should have done this much earlier.
June 25, 2018 AT 11:50 AM
according to a news agency before the approval of the tax amnesty scheme by the apex court, only one to two return declarations were being received daily, but that had now risen to over forty declarations on average daily. impressive